What is the Investment Canada Act? Part Three: Matters of National Security

A national security review process exists under the Investment Canada Act that is similar to the national security screening for foreign investment in the United States. The Canadian government is authorized under this review process to assess foreign investments and determine if they are “injurious to national security.” Transactions are subject to a review of this nature pre- or post-closing. If the review occurs pre-closing, the parties will be prohibited from closing the transaction until the review has concluded favourably. The Investment Canada Act does not define what constitutes “national security,” which may cause unpredictability for foreign investors.

Notification and Review Procedures

If a foreign investor is establishing a new Canadian business, for example, that falls below the relevant threshold, it will simply require notification. It is important to keep in mind that notifiable investments may still be subject to full review, particularly if they involve culturally sensitive businesses or require a national security review.

A full review, rather than a notification, will be required in cases where foreign investors acquire a Canadian business that falls above the relevant threshold. If this occurs, the foreign investor is obliged to complete an application providing information about the investor and the Canadian business involved in the investment. This application must be filed prior to the transaction being completed, in most cases, but exceptions include:

  • Applications concerning indirect acquisitions may be filed up to 30 days after the investment is implemented.
  • Applications concerning investments in culturally sensitive sectors that have been made specifically subject to review are required upon receipt of the notice for review.

The federal Cabinet Minister responsible for the Investment Canada Act may permit investment to be implemented prior to completion of the review. This will occur if the Minister determines that a delay in the investment would cause undue hardship to the investor or jeopardize the operations of the Canadian business in question. In this case, the application must be filed within 30 days after the investment is implemented.

The foreign investor must outline their plans for the Canadian business in their application for review, which should indicate a benefit to Canada. The information provided will be assessed against the following factors, where they are relevant:

  • The effect of the investment on the level and nature of economic activity in Canada, including employment; resource processing; the utilization of parts, components and services produced in Canada; and on exports from Canada.
  • The degree and significance of participation by Canadians in the Canadian business, and in any industry in Canada of which it forms a part.
  • The effect of the investment on productivity, industrial efficiency, technological development, product innovation and product variety in Canada.
  • The effect of the investment on competition within any industry or industries in Canada.
  • The compatibility of the investment with national industrial, economic and cultural policies, taking into consideration industrial, economic and cultural policy objectives enunciated by the federal government, or the legislature of any province likely to be significantly affected by the investment.
  • The contribution of the investment to Canada’s ability to compete in world markets.

The Cabinet Minister overseeing the review may require undertakings from the foreign investor that commit them to certain courses of action or expenditures.

Looking for sound legal advice for your organization, business or corporation? Contact KGPC LLP today.

Related Posts